California taxes capital gains exactly as it taxes wages. There is no lower California rate for long-term gains, no holding-period discount, and no separate capital gains schedule. A gain is added to the taxpayer income for the year, it stacks on top of wages and other income, and it is taxed at whatever graduated rates the total reaches, from 1% to 12.3%, plus an additional 1% on taxable income above $1 million. This guide is California-only: it works the state calculation with the Franchise Tax Board 2025 rate schedules, and it leaves the federal calculation, with its separate preferential rates, to the federal guides.

The California rule: gains are ordinary income

California’s personal income tax starts from federal adjusted gross income, applies California adjustments, subtracts the California standard deduction or itemised deductions, and taxes the result at the state’s graduated rates. Capital gains enter that calculation as part of income, with no separate rate, no exclusion for long-term holding, and no adjustment that re-prices them. A dollar of long-term gain from stock held for ten years is taxed at the same rate as a dollar of wages, a dollar of interest, or a dollar of short-term gain, at whatever bracket the taxpayer’s total taxable income reaches. The federal system, by contrast, taxes long-term gains at separate lower preferential rates, which is why a taxpayer who has planned around the federal holding period can still be surprised by the California bill: the federal saving from holding longer than a year has no California counterpart, and the California tax on the same gain can exceed the federal tax on it at moderate incomes, because the California marginal rate at the top of a middle income is already 9.3%.

The rule has one important consequence for how gains should be thought about in California: timing a sale across tax years, splitting a gain, or offsetting it with losses changes the California tax only through the total income and the brackets, not through any holding-period threshold. Holding an asset for one year and one day instead of 364 days changes the federal rate and leaves the California rate untouched, except through the year in which the income falls. Conversely, a gain realised in a year with little other income is taxed at lower California brackets than the same gain realised in a high-income year, because the gain stacks on top of whatever else is there. The California planning question is therefore about the year and the total, not about the holding period, and the examples below are built around that question.

California also has no separate capital gains form or schedule that re-prices gains. Gains and losses are reported on the California return through the federal Schedule D figures as adjusted for California law, and the tax is computed on the total through the rate schedules or the tax table, in the same way as any other income. California adjustments exist, for differences between federal and California law on specific items, and they can change the amount of gain recognised in California relative to the federal amount, but they do not create a preferential rate. A taxpayer whose federal and California gains differ should expect the difference to come from an adjustment item, such as a difference in basis or in the treatment of a specific transaction, and the Franchise Tax Board instructions for the year state the adjustments that apply. The calculator on the hub page models the California annual tax from income and the rate schedules; it does not model individual adjustment items, and a return with material adjustments needs the FTB forms, not a calculator.

The 2025 rate schedules

The figures in this guide are the Franchise Tax Board 2025 California tax rate schedules, the schedules the hub page uses for its 2025 tax year. Single filers pay 1% on taxable income up to $11,079, 2% above that, 4%, 6%, and 8% through the middle brackets, 9.3% on taxable income above $72,724, 10.3% above $371,479, 11.3% above $445,771, and 12.3% above $742,953. Married couples filing jointly have brackets roughly double the single thresholds, with 9.3% starting above $145,448, and the same 10.3%, 11.3%, and 12.3% rates at the higher thresholds. On top of the nine brackets, an additional 1% Behavioral Health Services Tax, formerly called the Mental Health Services Tax, applies to taxable income above $1 million, bringing the top marginal rate to 13.3%. The schedules are indexed for inflation in most brackets, although the top brackets are indexed less fully, so the thresholds move a little each year, and a later year’s return needs that year’s schedules from the FTB.

Two further elements complete the California calculation. The standard deduction for 2025 is $5,706 for single filers and $11,412 for married couples filing jointly, a much smaller deduction than the federal standard deduction, so most income is taxed in California that would be sheltered federally. Exemption credits then reduce the tax itself, not the income: $153 per filer, $475 per dependent, and $153 per filer aged 65 or older, subject to phase-out once federal adjusted gross income passes $252,203 single or $504,411 joint, under the 2025 Form 540 rules. The credits are small against a large gain, and they phase out at the incomes where large gains usually occur, so a large-gain calculation can often be approximated from the schedules alone, with the credits added for exactness at lower incomes. The hub page’s FAQ on the $153 credit and its phase-out explains the credit mechanics in detail, and the examples below state when credits are included and when they are set aside for clarity.

The joint thresholds in the table are stated approximately as double the single thresholds, which is how the FTB schedules are constructed, except that the $1 million threshold for the additional 1% tax is $1 million for all filing statuses, not doubled for joint filers. The middle-bracket thresholds should be taken from the FTB schedule for the filing status and year in question for an exact return; the table’s purpose is to show the shape of the schedule and the position of the 9.3% bracket, which is where most gain taxation happens, since $72,724 of taxable income is reached by a great many California taxpayers with a gain on top of ordinary earnings. A gain that lands entirely within the 9.3% bracket is taxed at 9.3% in California, whatever its federal treatment, and that single fact prices most California gains.

Stacking: how a gain finds its rate

Stacking means the gain is added on top of other income, and the brackets are applied to the total from the bottom up. Wages and other ordinary income fill the lower brackets first, and the gain fills the brackets above them, so the marginal rate on the gain is the rate at the top of the taxpayer’s total income, and the gain may span several brackets if it is large enough to cross bracket boundaries. A small gain on top of a moderate income is taxed entirely at the marginal rate that income already reaches. A large gain on top of a high income spans the 9.3%, 10.3%, 11.3%, and 12.3% brackets in turn, with each slice taxed at its own rate, and the average rate on the gain is a blend of the slices, lower than the top marginal rate. The effective rate on the whole return, total tax divided by total income, is lower still, because the lower brackets tax the lower slices cheaply. Confusing the marginal rate on the gain with the average rate on the return, or with a single flat rate, is the commonest error in California gain estimates, and the worked examples below keep the three concepts separate.

An illustration with round numbers shows the mechanics. A single filer with $50,000 of taxable income before any gain sits in the 8% bracket, since $50,000 is below the $72,724 threshold for 9.3%. A $30,000 gain on top takes taxable income to $80,000, so the first $22,724 of the gain is taxed at 8%, filling the bracket to $72,724, and the remaining $7,276 is taxed at 9.3%. The California tax on the gain is $22,724 times 8%, which is $1,817.92, plus $7,276 times 9.3%, which is $676.67, totalling $2,494.59, an average rate on the gain of 8.31%. The marginal rate on the last dollar of the gain is 9.3%, the average rate on the gain is 8.31%, and the average rate on the whole $80,000 of taxable income is lower again. A guide that quoted any one of those three figures as the tax on the gain without saying which it was would mislead, and the examples in this guide state which figure is being quoted in each case.

Worked examples: a $50,000 gain and a $600,000 gain

Example one: a single filer with $80,000 of wages and a $50,000 long-term gain, before deductions and credits, simplified to show the marginal rate. California taxable income is the $130,000 total minus the $5,706 standard deduction, $124,294, before exemption credits. The wages alone, $80,000 minus $5,706, would be $74,294 of taxable income, already above the $72,724 threshold, so the filer is already in the 9.3% bracket before the gain. The entire $50,000 gain therefore falls in the 9.3% bracket, and the California tax attributable to the gain at the margin is $50,000 times 9.3%, which is $4,650, before credits. The full return’s tax is computed through the whole schedule, and the $4,650 is the marginal cost of the gain, the amount by which the tax rises because the gain is there, holding everything else fixed. It is not the total tax, and it is not the average rate, and it ignores the $153 exemption credit, which would reduce the total tax by $153 at this income level, before any phase-out, and would not change the marginal rate on the gain.

Example two: a single filer with $200,000 of wages and a $600,000 gain, again simplified, before credits. Total income is $800,000, taxable income after the $5,706 deduction is $794,294, and the gain spans the top of the schedule. The wages alone would give taxable income of $194,294, in the 9.3% bracket, so the gain’s first slices are taxed at 9.3% up to $371,479, then 10.3% to $445,771, then 11.3% to $742,953, then 12.3% on the portion above $742,953. The portion above $742,953 is $794,294 minus $742,953, which is $51,341, taxed at 12.3%, and no part reaches the $1 million threshold for the additional 1% tax, since taxable income is $794,294. The marginal rate on the last dollar of the gain is 12.3%, the average rate on the gain is a blend of 9.3%, 10.3%, 11.3%, and 12.3% across its slices, and the total California tax is computed through the full schedule. A gain $210,000 larger, taking taxable income above $1 million, would put the top slice into the 13.3% combined marginal rate, and the planning value of splitting such a gain across two tax years, where the transaction allows it, is visible in the bracket structure: each year restarts the schedule from the bottom.

Example three, the joint case, briefly: a married couple filing jointly with $150,000 of wages and a $100,000 gain, before credits. Joint taxable income after the $11,412 deduction is $238,588, and the joint 9.3% bracket starts at $145,448, so the wages alone, $138,588 of taxable income, sit in the 8% bracket, and the gain spans the 8% and 9.3% brackets, with most of it at 9.3%. The joint thresholds being roughly double the single thresholds means a couple can absorb roughly twice the gain before reaching the 10.3% bracket, which is the structural reason the hub guide’s single-versus-joint comparison shows a large difference on the same income. The California calculation rewards joint filing on a gain in the same way it rewards it on wages: the schedule is wider, and the gain has further to climb before it reaches the top rates.

Short-term versus long-term: no difference in California

In California, a gain on an asset held for a year or less and a gain on an asset held for decades are taxed identically. The holding period matters federally, where it decides whether the preferential long-term rates or the ordinary rates apply, and it matters for the characterisation of the gain on the federal return, but the California return takes the gain as income and applies the schedules without regard to the holding period. A day trader’s gains and a retiree’s gains from a holding of 30 years face the same California rates on the same total income, and the only California difference between them is the year in which the income falls and the total it joins. Taxpayers who defer a sale to cross the one-year federal threshold should not expect any California benefit from the wait, and taxpayers who sell short-term assets should not expect a California penalty beyond the income itself. The holding period is a federal planning variable with California consequences only through timing.

Depreciation recapture and similar federal character rules also flow into California income without a separate California rate. Gain that is recaptured as ordinary income federally, such as depreciation on rental property, enters California income as ordinary income too, and gain that is treated as capital federally enters as capital, but both are taxed at the same California graduated rates, so the character distinction that matters so much federally matters little for the California rate, although it matters for the amount recognised and for the federal return. Collectibles and other specially rated federal categories likewise receive no special California rate. The California question is always the same: how much income, in which year, on top of what else. That simplicity is the point of the California system, and it is also its harshness for long-term investors, who receive no reward for patience from the state.

Losses, netting, and what offsets what

Capital losses offset capital gains in California generally following the federal netting pattern, as adjusted for California law: short-term losses offset short-term gains, long-term losses offset long-term gains, and net losses in one category offset net gains in the other, with the result entering California income. A net capital loss can offset a limited amount of other income per year, with the excess carried forward to future years, and the limit and carryforward rules should be taken from the FTB instructions for the year, since California conformity on loss limits and on specific transactions is not automatic and has changed over time. The practical consequence is that a loss realised in the same year as a gain shelters the gain dollar for dollar up to the gain, at the marginal rate the gain would have borne, which makes loss harvesting valuable in California at the 9.3% marginal rate that most gains face, and more valuable still at the top rates. A loss realised in a year with no gain shelters only the limited amount of other income and carries forward, so the timing of losses relative to gains matters in California as it does federally, through the same netting logic.

Wash-sale and related-party rules, which disallow or defer losses on repurchases and related transactions, apply in California through conformity with the federal rules in most cases, and a loss disallowed federally is generally disallowed in California too, although specific conformity differences should be checked where they are material. A taxpayer who harvests a loss should therefore follow the federal wash-sale discipline, waiting the required period before repurchasing substantially identical securities, and should keep the trade records that show the acquisition and sale dates, the basis, and the repurchase history. The California benefit of a harvested loss is the marginal rate saved, and the cost of a disallowed loss is the loss of that benefit plus the complexity of carrying the disallowance forward. Harvesting is worth doing deliberately, in the year of the gain, and not worth doing hastily in a way that the wash-sale rule undoes.

Residency, property, stock compensation, and estimates

Residency decides what California taxes. A California resident is taxed on worldwide income, including gains from assets anywhere, while a nonresident is taxed on California-source income, including gains from California real property and from a business or employment in California. A taxpayer who moves during the year is taxed as a part-year resident, with income allocated between the resident and nonresident periods, and a gain from the sale of California real property by a nonresident remains California-source income. The sourcing of stock compensation, such as restricted stock units, follows where the work was performed between grant and vesting, so shares that vest after a move can still be partly California income, and the allocation should be documented at vesting, not reconstructed at sale. These sourcing rules are where California gain taxation most often surprises movers, and they should be checked before a move, since establishing residency elsewhere before a large sale does not remove California tax on California-source gains, although it does remove California tax on gains from assets with no California source.

Gains are not subject to withholding in the way wages are, so a large gain creates an estimated-tax obligation. California requires estimated payments where the tax will exceed the withholding and credits by a threshold, and underpayment can draw a penalty, with the usual safe harbours based on the prior year’s tax and the current year’s liability. A taxpayer who realises a large gain in one quarter should make an estimated payment for that quarter, rather than waiting until the return is filed, and should consider increasing withholding from wages as an alternative way to meet the safe harbour, since withholding is treated as paid evenly through the year while estimated payments are credited when made. The FTB’s estimated tax form and instructions state the thresholds and the penalty calculation for the year. The home-sale rules, including the interaction between the federal exclusion and California’s treatment, should be confirmed from FTB guidance for the sale year before a sale, since the exclusion amounts and the conformity position are specific and the dollars are large.

Planning a California sale

Plan a California sale around the year and the total. Splitting a gain across two tax years, where the transaction allows it, such as an instalment sale, restarts the brackets in the second year and can keep both years’ slices out of the top rates, at the cost of the time value of the deferred proceeds and the risk that rates or circumstances change. Realising a gain in a low-income year, such as a year between jobs, a sabbatical, or early retirement before other income begins, puts the gain into lower brackets and is the single most valuable California timing move available. Offsetting gains with harvested losses in the same year shelters the gain at the marginal rate, and bunching deductions or credits into the gain year, where the rules allow, reduces the taxable income the gain stacks onto. None of these moves changes the California rate on the gain directly, because there is no separate rate to change; all of them work through the total and the year, which are the only levers California provides.

Get the year’s figures before acting. The schedules in this guide are the 2025 schedules, and a sale in a later year needs that year’s FTB schedules, standard deduction, credits, and phase-outs, which the hub page will reflect for its own tax year. Confirm the classification of the gain, the basis, and any California adjustments, since an error in basis is an error in the gain itself, and a basis error on a property sale dwarfs any rate planning. Keep the purchase documents, improvement receipts, and sale statements, since improvements add to basis while repairs generally do not, and the basis records are what the FTB or the IRS will ask for if the return is examined. California’s gain tax is simple in structure and unforgiving in arithmetic: the rate is the schedule, the schedule is applied to the total, and the total is decided by the records. Plan the year, keep the records, and the California bill will hold no surprises.

Frequently asked questions

Does California tax capital gains at a lower rate?

No. California has no preferential rate for capital gains. Short-term and long-term gains are both taxed as ordinary income at the graduated rates of 1% to 12.3%, plus 1% above $1 million of taxable income.

What are the California capital gains tax rates?

The 2025 single-filer rates run from 1% to 12.3%, reaching 9.3% above $72,724 of taxable income and 12.3% above $742,953, plus a 1% tax above $1 million for a 13.3% top rate. Joint thresholds are roughly double, except the $1 million threshold.

How is a California capital gain calculated?

The gain is added to the taxpayer other income, the California standard deduction is subtracted, exemption credits are applied, and the graduated schedules tax the total from the bottom up. The gain is taxed at the marginal rates at the top of the total.

Do short-term and long-term gains differ in California?

No. California taxes both at the same graduated rates. The holding period matters for the federal tax, not for the California rate, although it affects the year in which the income falls.

Can capital losses offset gains in California?

Yes, generally following the federal netting pattern as adjusted for California law, with a limit on offsetting other income and carryforward of the excess. Check the FTB instructions for the year for the limit and conformity details.

Does moving out of California avoid California capital gains tax?

Not on California-source gains. Residents are taxed on worldwide income and nonresidents on California-source income, including gains from California real property. Stock compensation is sourced by where the work was performed.